The real estate revolution: Why the time for change is now

Neil Bullen 05 December 2018

Disruption is finally coming to the real
estate sector, unlocking major advantages
for asset owners.

It’s an exciting time to be working in real estate. The sector has the opportunity to significantly reduce risk and increase efficiencies, learning from more advanced sectors such as manufacturing, energy and transport.

The need for our industry to embrace disruption has never been more pressing: new players are entering the market and challenging traditional supply chains; occupants are requiring more flexibility; owners want a more sophisticated understanding of their portfolios and how they can contribute to business returns.

Over the next five years, the real estate sector will experience a fundamental change in five strategic areas. The extent to which tenants, landlords and the supply chain respond and adapt will be crucial for their long term survival.

“The sector has the opportunity to significantly reduce risk and increase efficiencies, aligning with other sectors such as manufacturing, energy and transport.”

How to lead real estate disruption

1. Real estate becomes a strategic asset

Make real estate central to corporate strategy: agile, responsive and playing a key role in recruiting and retaining top talent.

For decades, buildings and assets were a marginal issue for companies. They were often regarded as a high cost necessity, with a limited role in their contribution to overall success. A building could be constructed, fitted out, and remain more or less static for years.

Today, real estate is becoming much more central to corporate strategy: productivity-enhancing, futureproofed and responsive to the changing needs of users. It can also play an important role in recruitment and retention, creating appealing high-tech environments to attract and retain top talent.

Organisations are realising that the cost impact of losing employees is many times higher than accommodating them. Leading companies are taking an increasingly holistic approach to employee well-being, focusing on creating the right employee experience and aligning real estate, technology and human resources. The best portfolio strategies reflect this shift in corporate thinking.

2. Industry integration is coming, finally

Take a longer term view of a building’s life cycle, maximising operational resilience for a greater return on investment.

The traditional approach to planning, construction and operation of an asset is fragmented and episodic. Risk lurks within each new transaction, adding to the costs of contingency. Each party has differing goals. Valuable information sits in silos and is not shared to benefit the broader project.

The pooling of standardised data across delivery and operational teams will be a major step towards a more integrated industry. Better integrated supply chains will unlock many benefits for real estate clients, helping them to focus on the entire life cycle of the asset, maximising operational resilience.

Rising demand for turnkey solutions in the building and provision of assets will help to accelerate this vertical integration of supply chains, as clients develop more in-depth relationships with strategic suppliers.

3.Collaboration

Share standardised data across the sector to benchmark performance and drive up standards.

The fragmented nature of the construction industry, combined with lowest-cost tendering, often gives rise to an adversarial working culture. Different parties have conflicting or misaligned goals, relying on contractual disputes to claw back profit.

Working to typically slim profit margins, companies are often reluctant to invest in research and development. Commercial strategies are risk averse, with individual companies playing “not to lose” rather than working towards mutual benefit.

The industry desperately needs to move to a new model that will encourage collaboration and a win-win mentality.

Ways of achieving this include forming strategic alliances and adopting more consistent standards in design, measurement methods and data benchmarks. Contracts will need to encourage collaboration between all parties.

Too many buildings are still designed from scratch, using bespoke elements and requiring complex choreography to install services such as heating, ventilation and plumbing.

Modern methods of construction have started to disrupt this uneconomical and often inefficient system, as enlightened clients see that huge efficiencies can be gained from a more standardised approach and shift to offsite manufacture. Some well-established examples include panellised building systems to fully serviced bathroom pods.

But this is only the first step in an evolution that will take construction closer to a manufacturing mindset: some clients are already reducing buildings down to kits of parts that can be quickly assembled, and transported around the world in shipping containers.

Modern methods of construction will be a major contributor to the UK Government’s industrial strategy for construction, which aims to reduce the costs of construction and of whole life assets by 33 percent, halving the time it takes to construct a building and also reducing greenhouse gas emissions in the built environment by 50 percent.

5. The digital revolution takes hold

Use the technology that is here now, such as blockchain, building information modelling (BIM) and machine learning, to enable more strategic and collaborative partnerships with your suppliers.

Many real estate players are still waiting for an idealised form of technology to arrive and transform their operations. But much of this ‘magical’ technology already exists: for example, blockchain will transform payment and delivery processes, and robotics used for prefabrication and 3D printing will help to accelerate the design for manufacture. BIM is expanding into more strategic applications. The next generation of digital models will link to cost libraries, helping asset owners understand the price implications of every decision.

In other sectors, such as transport and health, artificial intelligence and machine learning are increasingly being applied to different tasks. Although the real estate sector has been slower to adopt this technology, algorithms will become an essential business tool in the near future.

For example, schedule optimisers that consider multitudes of alternatives for project delivery, will accelerate and streamline project planning. Predictive applications will help project teams to understand and minimise project risks. Enhanced analytics platforms, using data collected from sensors, could build up a sophisticated picture of how an asset is being utilised, helping facilities management teams to develop effective maintenance strategies.

In the next five years, the real estate sector will experience a fundamental change in five strategic areas. The extent to which companies respond and adapt will be crucial for their long term survival.

Moving to a trust-based culture

Our industry is on the brink of a seismic change. Technology, standardised data and digital working are paving the way for a trust-based culture where supply chains and clients work together for mutual advantage.

This will disrupt the way asset owners and suppliers interact. Multinationals are likely to slim down their supplier list, choosing one strategic partner to manage their global real estate portfolio. The client focus will shift from simply building new infrastructure, to finding the best solutions that match their long-term growth strategy.

Suppliers will have to respond to this changing client demand by creating strategic global alliances. Astute use of digital technology and data will help them hold their supply chains to account, reducing the need for heavy assurance mechanisms.

Those organisations at the forefront of this revolution will gain significant competitive advantage in the years to come.